It’s not just about cheap watches, you know. Get up to speed with the whys, whats and hows of the grey market.

THREE TYPES OF MARKETS
When it comes to buying watches, there are three shades that one needs to know, depending on their legality and transaction channels. White markets cover watches that are legally traded through the manufacturer’s intended retail network, meaning authorised dealers. The opposite is the black market. It is defined by illegal goods and transactions. In a grey market, goods that are legal to buy, sell, and own are traded – legally too – but through non-official channels. For example, buying an Apple Watch from a parallel importer before it is officially launched in a country counts as a grey market transaction.

WHY IS IT DISCOURAGED?
Watch brands prefer to maintain standardised prices across all markets, and favour select ones in other ways, like launching new models there first. Patek Philippe demonstrated this when it adjusted its prices for various markets in February 2015, following the Swiss franc’s substantial appreciation the month before. A second round of revisions for Hong Kong and Singapore was done in July later that year, again to bring the different markets’ prices closer to parity.

WHY IS THE GREY MARKET ATTRACTIVE?
Simple: because it is possible to get the watch you want at a cheaper price on the grey market. While prices in official retail channels tend to be rigid with few, if any, adjustments in a given year. The other factors affecting the final prices “felt” by a consumer, however, are in constant flux, which suppliers in the grey market can exploit.

THREE COMMON PRICE ADJUSTMENT FACTORS
Differing tax rates between countries can drive grey market activity. A local grey market dealer can, for example, purchase a watch privately in Germany and claim its 19 per cent value-added tax refund as a tourist. Even after accounting for the 7 per cent GST that’s levied on the watch when he brings it into Singapore, he has still gotten it at a discount. Again, this allows him to sell it at a lower price compared to local dealers, but at a profit for himself.

Foreign exchange rates is another factor. In late 2015, the Malaysian ringgit depreciated almost 11 per cent against the Singapore dollar, but retail prices of watches were not adjusted upwards immediately in Malaysia. A hypothetical watch that had initially cost the same in both countries would now be 10 per cent cheaper in Malaysia (for a Singaporean) after factoring in taxes. A grey market dealer could have imported it into Singapore and sold it at a discount vis-à-vis the local retail price, yet still made a profit.

Finally, we must not forget that watches are physical goods that retailers order from manufactures based on their individual projections. Since sales performances will differ across markets, an authorised dealer may have surplus stock that he is willing to offload at a higher discount. A grey market dealer with a sufficiently wide network can take advantage of this by buying these watches and selling them in another market with a demand for them.

DARKER SHADES
Our examples so far have assumed a completely legal approach to trading watches on the grey market, but it’s worth noting that there is a shadier side. There have been instances where grey market dealers may smuggle watches in to avoid taxes. This practice may not upset a buyer, but others definitely will – there have been allegations of worn timepieces being passed off as new and, worse yet, well-made fakes being sold as genuine products. So weigh your options, do proper research, go with a trusted dealer - and most importantly, with your eyes open.